The legal but improper minimisation of taxable income, i.e. using legal techniques to manipulate the rules within a tax regime to reduce the amount of tax paid without necessarily contravening any specific legal requirements, for one’s own personal financial benefit.
Some examples of basic tax avoidance practices include:
- Manipulation of superannuation tax breaks and benefits
- Establishment and financial exploitation of multiple trusts
- Increasing tax deductions
Some examples of specific tax avoidance schemes identified by the Australian Tax Office (ATO) include:
- TA 2016/6 Diverting personal services income to self-managed superannuation funds
- TA 2016/5 Purported tax-exempt non-profit ‘foundations’ used to evade or avoid taxation obligations
- TA 2015/4 Accessing business profits through an interposed partnership with a private company partner
- TA 2015/3 Accessing the R&D Tax Incentive for ineligible broadacre farming activities
- TA 2015/1 Dividend stripping arrangements involving the transfer of private company shares to a self-managed superannuation fund
- TA 2014/1 Trusts mischaracterising property development receipts as capital gains
- TA 2013/1 Arrangements to exploit mismatches between trust and taxable income
- TA 2012/7 Self-managed superannuation arrangements to acquire property which contravene superannuation law
- TA 2012/4 Accessing private company profits through a dividend access share arrangement attempting to circumventing taxation laws
- TD 2012/1 Applying Part IVA to deny a deduction for some, or all, of the interest expense incurred in respect of an ‘investment loan interest payment arrangement’
- TA 2011/2 Certain labour hire arrangements utilising a discretionary trust to split income
In 2016, the ATO established the Tax Avoidance Taskforce to extend compliance monitoring, focusing on the most aggressive tax avoidance schemes. The taskforce has been funded with $679 million for four years.
In 1991, in the corporate tax inquiry into print media in front of which Kerry Packer appeared, Mr. Packer famously said:
“Of course I am minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read, because as a government, I can tell you you’re not spending it that well that we should be donating extra!”
Many Australians at the time sympathised with Mr. Packer’s sentiment, which clearly lays out the difference in both legality and public conception between tax minimisation/avoidance (legal) and tax evasion (illegal).